BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 22, 2011 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 51
Author: Yamada
Version: As Amended May 31, 2011
SUBJECT
Payroll cards.
KEY ISSUE
Should the Legislature explicitly legalize payroll cards for the
purposes of wage payment to workers, as well as regulate the
fees the payroll card vendor may charge workers?
PURPOSE
To explicitly legalize payroll cards and minimize the fees which
may be charged for their use.
ANALYSIS
Existing law prohibits any person, or agent or officer thereof,
from issuing wages due or as an advance on wages to be earned
any order, check, draft, note, memorandum, or other
acknowledgment of indebtedness, unless it is negotiable and
payable in cash, on demand, without discount, and at the time of
its issuance and for a reasonable time thereafter, which must be
at least 30 days. (Labor Code §212)
Existing law requires every employer shall, semimonthly or at
the time of each payment of wages, furnish each of his or her
employees, either as a detachable part of the check, draft, or
voucher paying the employee's wages, or separately when wages
are paid by personal check or cash, an accurate itemized
statement in writing. This statement must include, among other
things, gross and net wages earned, hour worked, and any
deductions that were taken. (Labor Code §226)
This bill would explicitly allow employers to utilize payroll
cards as a method of payment to employees, as specified.
Specifically, this bill would:
1) Require that the employer has obtained the employee's
voluntary written consent to receive wages by payroll card;
2) Requires that the employer has offered the employee, and
the employee has declined both the option of receiving his
or her wages by direct deposit to a depository account of
the employee's choosing and the option of receiving payment
by paper check;
3) Prior to obtaining the employee's consent, the employer
must provide the employee, in the language the employer
normally uses to communicate employment-related information
to the employee, all of the following information:
a) A description, stated in plain language, of the
employee's options for receiving wages.
b) The terms and conditions of the payroll card
account, including a clear, conspicuous, and complete
itemized list, in a form the employee may retain for his
or her records, of any fees that may be deducted from the
employee's payroll card account by the issuer. The list
shall state the dollar amount of each fee.
1) The payroll card contract the employer has entered into
with the issuer requires that the issuer provide the
employee, at no cost to the employee, all of the following:
a) The right to make at least two withdrawals per pay
period from an automated teller machine (ATM).
b) At least one method to withdraw the entire amount of
wages for each pay period.
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c) A periodic statement at least once each month, which
must include all transactions during the statement
period, including deposits, withdrawals, fees charged,
and other transactions affecting the payroll card
account. The employee may choose to decline to receive
statements.
d) A transaction history for the 12-month period
preceding the request, at the request of the employee.
e) Electronic balance notifications for each day or
after each transaction, at the request of the employee.
f) An annual notice by postal mail informing the
employee of his or her right to request periodic
statements, 12-month transaction histories, and
electronic balance notifications.
1) Prohibits the following fees:
a) An application, initiation, loading, participation,
or other fee to receive wages or to obtain the payroll
card.
b) A fee for a point-of-sale transaction, unless the
fee is charged by a person that accepts credit or debit
cards for the transaction and the employee initiated the
transaction.
c) A fee to withdraw funds from a teller or ATM within
the network of the financial institution providing the
payroll card account.
d) An overdraft, shortage, or low-balance fee.
e) A fee for a declined transaction.
f) A fee for account inactivity.
g) A fee for the first three telephone calls to a live
customer service representative per pay period.
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h) A fee to access balance or other account information
online, by an interactive voice response system, or by
any other automated system offered in conjunction with
the payroll card, or at an ATM in the network of the
issuer.
i) A fee for a written statement or a transaction
history.
j) A fee to close the payroll card account or issue
payment of the remaining balance by check or other means.
aa) A fee to provide at least one replacement card each
year.
bb) A fee not expressly identified by type and amount in
the contract between the employer and the issuer.
cc) A fee for using a method, offered by the employer,
to withdraw the entire amount of wages for each pay
period.
1) Prohibits the expiration of the funds in the payroll
card account do not expire;
2) Prohibits the linking of the payroll card account to any
form of credit, including a loan against future wages or a
cash advance on future wages.
3) Requires the employer to honor a request by the employee
to change the method of receiving wages from the payroll
card account to another method that is allowed by law,
within two pay periods from the time of the request.
4) Requires that the payroll card account is insured by the
Federal Deposit Insurance Corporation or the National
Credit Union Administration on a passthrough basis to the
employee.
5) Requires that the payroll card account complies with all
federal law applicable to direct deposit;
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6) Clarifies that payroll card accounts still require a
paystub; and
7) Empowers the Division of Labor Standards Enforcement
(DLSE) to create and enforce further regulations regarding
payroll card wage payments that are consistent with this
section.
COMMENTS
1. History of the Payroll Card:
A 2005 analysis prepared by the California Research Bureau
provides the following summary of the history of payroll
cards:
"Stored value cards were introduced in the early 1970s with
"closed loop systems" on college campuses. Students used
these cards for meals, bookstore purchases and other
campus-related expenses. In a closed system (close-loop), the
card can only be used for restricted purposes. More recently,
there are gift certificates and gift cards that can only be
used at the sponsoring merchants' locations. Other examples
include mass transit cards and pre-paid phone cards.
"Open loop systems," another category of stored value card,
were introduced in the mid-1990s in Manhattan, New York, when
Visa Cash, Mondex, and MasterCard branded cards were
introduced into the market. Open system (open-loop) cards are
widely used beyond the issuer's location through a universal
network for PIN-based or signature-based transactions. Open
loop systems were further developed and used during the 1996
Olympic games in Atlanta, by participants using a stored value
card with the different merchants. According to industry
estimates, more than 2,000 stored value programs are
available, with roughly seven million Visa- or MasterCard-
branded stored value cards in the marketplace today.
Pay Cards, also known as Payroll Cards, use open loop systems.
This gives the cardholder the ability to purchase items
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wherever merchants participate in the brand of card, whether
it is Visa or MasterCard. Once a purchase has been made, the
funds stored within the card are automatically deducted. The
cards may also be used at ATMs to withdraw cash or get cash
back from retailers.
In a 2004 Washington Post article discussing payroll cards, it
notes that as of that year only 2.2 million cards were in use
nationally, but it was expected to grow to 7 million by 2006.
Also discussed in the bill was the target constituency for
payroll cards: workers and their families who are unbanked or
underbanked, which are defined by the FDIC as individuals or
families that have a checking or savings account but rely on
alternative financial services, such as payday loans,
rent-to-own agreements, or pawn shops at least once or twice a
year.
2. How do Payroll Cards Work?
Typically, an employer contracts with a payroll card vendor to
supply payroll cards to his or her workers. The employer then
sends the company's payroll to the vendor, who electronically
deposits the funds onto the payroll cards. This process is
significantly cheaper than cutting payroll checks. For
example, on Visa's payroll card website, Visa advertises that
they can deposit funds via payroll cards for 35 cents.
Paychecks, on the other hand, average about $1 or $2. The
employer also pays a fee to set the payroll card system up,
but according to the examples provided by the California
Research Bureau, these fees are still less than cutting
paychecks.
Unlike a bank account or debit card, however, payroll cards
can have unique fees. For example, payroll cards can have a
monthly maintenance fee, irrespective of balance, which many
banks and credit union do not charge for their checking
accounts. Cards also charge a point of sale (POS) fee, which
debit cards generally do not charge. There can also be
additional fees if the customer requests cash-back at the
point of sale. According to the American Payroll Association,
any and all fees that a worker may be subject to due to the
use of a payroll card are negotiated between the vendor and
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the employer and found in the initial contract.
3. What is the Legal Status of Payroll Cards?
As discussed above, existing law only provides for cash and
its equivalents, which can include checks or direct deposit.
As payroll cards are quite new, this technology is not
directly dealt with in statute.
However, a 2008 Division of Labor Standards Enforcement (DLSE)
letter appears to license payroll cards as a legal technology
for the payment of wages. However, the letter was quite
specific to the circumstances provided: that the use of the
cards was voluntary; that the funds were FDIC insured; that
direct deposit was offered and rejected; that the payroll
cards allowed for one transaction without a fee, allowing the
worker to remove their funds and place in another bank; and
that an electronic paystub be included with the payroll card.
However, it should be noted that the analysis conducted for
this bill by staff of the Assembly Committee on Labor and
Employment suggested that the legality of this opinion letter
was subject to debate, as the statute is silent and does not
deal directly with the concept of payroll cards explicitly.
4. How does AB 51 Fit in this Legal Structure?
AB 51 impacts existing law in several ways: first, it
explicitly legalizes payroll cards. Second, it codifies
several aspects of the 2008 DLSE opinion letter: the use of
the card must be voluntary; direct deposit must be offered and
rejected; the funds can be removed without a fee; and it
explicitly mandates the inclusion of a paystub.
However, AB 51 also goes beyond this by regulating the fees
that can be charged. Whereas these fees would currently be
negotiated between the employer and the payroll card vendor,
AB 51 would create explicit prohibitions on fees for a variety
of uses, including customer service fees, paper statement
fees, or fees for point-of-sale purchases, unless credit or
debit card purchases would be subject to the same fee.
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5. Possible Amendments:
On page 3, lines 18-21, the bill requires that the employer
offers, and the employee rejects, direct deposit and paper
checks. As the bill is currently written, however, this offer
would occur AFTER the employee voluntarily adopts the payroll
card as their method for receiving wages.
The Committee may wish to consider striking the language on
page 3, lines 18-21 and including that language with the
initial voluntary adoption. As such, on page 2, starting at
line 24, the bill would read as follows:
(b) Notwithstanding Section 212, an employer may pay an
employee's wages through a payroll card program if all of the
following requirements are satisfied:
(1) The employer has obtained the employee's voluntary written
consent to receive wages by payroll card. Prior to obtaining
the employee's consent, the employer shall: provide the
employee, in the language the employer normally uses to
communicate employment-related information to the employee,
all of the following information:
(A) Offer the employee, and the employee declines, both the
option of receiving his or her wages by direct deposit to a
depository account of the employee's choosing and the
option of receiving payment by paper check.
(A) (B) Provide the employee, in the language the employer
normally uses to communicate employment-related information to
the employee, A a description, stated in plain language, of
the employee's options for receiving wages.
(B) (C) Provide the employee, in the language the employer
normally uses to communicate employment-related information to
the employee, The the terms and conditions of the payroll card
account, including a clear, conspicuous, and complete itemized
list, in a form the employee may retain for his or her
records, of any fees that may be deducted from the employee's
Hearing Date: June 22, 2011 AB 51
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Senate Committee on Labor and Industrial Relations
payroll card account by the issuer. The list shall state the
dollar amount of each fee.
(C) (D) Provide the employee, in the language the employer
normally uses to communicate employment-related information to
the employee, A a list of the services available to the
employee pursuant to paragraph (4).
6. Proponent Arguments :
According to the author, payroll cards have grown in use among
employers seeking to find an alternative to paper checks when
paying employees that cannot or do not want to receive their
wages through direct deposit. This method of payment has many
advantages to employers as it is cheaper than issuing paper
checks and simpler for the employer to ensure wages are
delivered.
The author states that, despite the advantages payroll cards
provide to employers, employees can often encounter problems
receiving their full wages using these cards. Fees on ATM
withdrawals, statements of account activity, point of purchase
sales, and even the simple act of checking on the balance of
the card can substantially reduce the final amount of wages
received through this program.
The author states that current California Law is silent on the
use of payroll cards. Therefore, it is unclear what
protections, if any, exist for employees receiving their wages
by payroll card; what standards, if any, exist for the use of
a payroll card program for an employer; or if the payroll card
method is a legal method for paying employee wages in
California. This uncertainty has resulted in the numerous fee
problems for employees and many issues for employers as well.
Given that there is not a definitive statute that addresses
the use of payroll cards, only the courts can determine the
legal boundaries of the payroll card method of payment.
Disputes over payroll cards and their use are restricted to
resolution through civil suits. This makes restitution for
the employee and employer defense against spurious claims, a
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costly recourse for both parties.
Therefore, the author argues that this bill solves these
problems by establishing clear guidelines for employers that
also protect employees from excessive fees. This bill would
also clarify that the payroll card method for the payment of
employee wages is legal in California.
Additionally, the City and County of San Francisco has taken a
"support if amended" position, asking that the requirement of
an offer of wage payment through a paper check be removed, as
well as the removal of the requirement that the employee's
consent to the payroll card be in writing.
7. Opponent Arguments :
Opponents contend that the use of payroll cards is already
valid and lawful under Labor Code Sections 212 and 213 and the
DLSE opinion letter discussed above. Similar to other
alternative methods of payment, such as direct deposit, an
employer must simply obtain the employee's un-coerced consent,
provide at least one withdrawal of the wages from the card
without any fees, and provide an itemized wage statement.
This bill would also basically prohibit issuers or employers
from charging any fees to the employee for the use of the
payroll card, regardless of the number of transactions.
Opponents contend that these burdensome restrictions on the
use of payroll cards will discourage employers from even
contemplating the use of this method of payment, thereby
denying employees a beneficial and useful method upon which to
receive their wages.
Opponents also state that from a financial institutions
perspective, this bill is unworkable. First, the bill
prohibits fees for overdrawing the payroll card. Ensuring
that payroll cards do not overdraft is difficult because the
processing of POS transactions my lag behind the withdrawal of
funds at ATMs, therefore the financial institution may not
have the real-time balance at the time of the ATM withdrawal,
which may result in an overdraft. Ensuring that the balance
is not overdrawn is ultimately the responsibility of the card
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Senate Committee on Labor and Industrial Relations
holder and they should not be immune from service fees that
are paid by checking account holders that overdraw their
accounts.
Second, the bill contains conflicting provisions relating to
ATM fees. The measure allows the charging of an ATM fee after
the first two free withdrawals during a pay period; however,
the bill in another provision bans the charging of an ATM and
POS fee entirely. Finally, the bill adds conflicting
responsibilities than what is required under the Federal
Reserve's amendments to Regulation E relating to payroll
cards. This regulation, which implements the federal
Electronic Funds Transfer Act, gave payroll card holders the
same consumer protections credit and debit card holders have
with respect to withdrawals, dispute resolution, and periodic
statements.
8. Prior Legislation :
AB 1591 (Yamada) of 2010 would have prohibited an employer
from requiring an employee to receive his or her wages by
payroll card unless the employee voluntarily agreed in writing
to do so and the employer offered the employee an alternative
lawful method to receive his or her wages. AB 1591 was set
but not heard in the Assembly Committee on Labor and
Employment.
SUPPORT
California Labor Federation, AFL-CIO (Sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinists
California Nurses Association
California Professional Firefighters
California School Employees Association, AFL-CIO
California State Pipe Trades Council
California Teamsters Public Affairs Council
Consumers Union
Engineers and Scientist of California
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Senate Committee on Labor and Industrial Relations
International Brotherhood of Electrical Workers
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers-Western States Conference
Utility Workers Union of America, Local 132
Western State Council of Sheet Metal Workers
SUPPORT (IF AMENDED)
City and County of San Francisco
OPPOSITION
Associated Builders and Contractors of California
California Association of Bed & Breakfast Inns
California Bankers Association
California Chamber of Commerce
California Farm Bureau Federation
California Grocers Association
California Hotel & Lodging Association
California Independent Bankers Association
California Retailers Association
Greater Fresno Area Chamber of Commerce
MasterCard Worldwide
Pacific Association of Building Service Contractors
Visa
Hearing Date: June 22, 2011 AB 51
Consultant: Gideon L. Baum Page 12
Senate Committee on Labor and Industrial Relations